Properly understanding the legal malpractice statute of limitations is critical to both preserving the defense should a claim ever arise, and to the timing of filing any suit for fees against a client (a last resort with a high risk of drawing a responsive malpractice claim).
In Arizona, the statute of limitations applicable to claims of legal malpractice (and breach of fiduciary duty) is the general negligence statute (A.R.S. § 12-542), under which a claim must be brought within two years after it accrues.
Arizona also applies the “discovery rule,” under which the cause of action only accrues when the plaintiff knows, or by the exercise of reasonable diligence should have known, of the defendant’s wrongful conduct. The client does not have to know what legal theories might apply, just that some acts or omission of the lawyer injured the client. The plaintiff need only know enough facts that would prompt a reasonable person to investigate and discover the full extent of the claim.
To help establish the discovery date, any client complaints about a representation should be confirmed in writing, at least in a memo to the file. When confirming a client complaint, follow your malpractice policy’s requirements for reporting circumstances which could give rise to a claim, in order to preserve coverage should such claims arise. If your policy renewal date is approaching, carefully consider whether disclosure of the client complaint is called for in your renewal application, to avoid later coverage issues based on prior knowledge of a potential claim.
For the statute to begin running in malpractice cases, the “discovery rule” requires not only the discovery of facts giving rise to a claim, but that the client discover (or in the exercise of reasonable diligence, should have discovered) that appreciable, non-speculative harm has resulted from the malpractice. For example, a client incurring fees to hire a second lawyer to undo harm caused by a previous lawyer normally constitutes damage that starts the clock running. The full extent of the client’s injury need not be known.
On the other hand, nominal damages not reasonably anticipated to result from the malpractice, or which are incurred attempting to mitigate damage, may not be enough to make the cause of action accrue. But once appreciable damage has been suffered, the two-year period starts to run.
In Arizona, the statute for malpractice claims arising in the litigation context is generally also tolled until the litigation is concluded, at least so long as the attorney who allegedly committed malpractice continues representing the client. The cause of action does not accrue until an adverse judgment becomes final, either after a final appellate decision or when the time to appeal has expired.
Clients should therefore be sent “end of engagement” letters every time a representation concludes. By documenting the end of the representation, such a letter can help avoid tolling the statute of limitations based on continuing representation, and help defeat an untimely malpractice claim.
On the other hand, be aware that providing additional services after a representation has ended – even after an “end of engagement” has been sent – can establish continuing representation that may delay accrual of the cause of action and defeat an otherwise valid statute of limitations defense.
Proper analysis of the statute of limitations is particularly important if a firm is considering suing a client for fees. Firms should always be cautious about suing a client, since doing so will typically generate a responsive malpractice claim. Thus, matters should always be carefully evaluated for malpractice exposure before deciding whether to sue for fees. Since the breach of contract statute of limitations is longer than the legal malpractice statute (typically six years for breach of written contracts and three years for oral contracts), firms that decide to sue for fees should only file suit after they are confident the malpractice statute has already run.
Malpractice insurers ask about suits for fees in their applications, since they know suits for fees greatly increase the risk of claims. Thus, suits for fees should only be considered as a last resort, and only pursued after all other collection steps have been taken and the file has been carefully reviewed to determine both the running of the statute and the risk of drawing a malpractice claim.
Taking effective actions to protect the statute of limitations defense is crucial for reducing the risk and expense of malpractice claims. A well-protected statute defense can lay the groundwork for a successful defense motion for summary judgment in a malpractice case. Taking the statute of limitations into account can also raise issues of when potential claims must be reported to malpractice insurers, and whether it is prudent to sue a client for fees. Daniel Hager